The Late Payment of Commercial Debts (Interest) Act 1998 (as amended by subsequent regulations) is a particularly important piece of legislation for parties who contract during the course of a business – this includes companies, sole traders, partnerships, and charities among others.
Often referred to as just the Late Payment Act or Late Payment Compensation Act, the Act is commonly presented as the basis for a business to claim compensation from its debtors.
Whilst the Act introduces various definitions and standards, it has two arms which are likely of specific relevance where a contract exists between businesses for the supply of goods or services, including goods provided on hire.
It is valuable to note that you do not need to have any reference to the Act in your contract and you can elect to claim under the Act instead of any contractual interest terms that you might have.
Interest, compensation, and reasonable costs
In order to encourage prompt payment of invoices, the Act sets out three grounds for the creditor to claim compensatory sums. These sums become owing as soon as the invoice(s) have passed their due date.
There is no requirement to claim under all three heads, but a creditor can where appropriate. Importantly, letters before action or proceedings can be brought purely for the compensatory sums where a debtor has tried to avert paying these by clearing just the invoice sum after its due date.
- Interest – a creditor is entitled to interest at 8.0% per annum above the Bank of England base rate, interest is calculated daily
- Compensation – a creditor is entitled to compensation for each outstanding invoice
- For invoices below £1,000 a creditor is entitled to £40
- For invoices £1,000 up to £9,999.99 a creditor is entitled to £70
- For invoices £10,000 and over, a creditor is entitled to £100
- Reasonable costs – where the fixed compensation sums do not cover the reasonable costs incurred by the creditor, then the creditor is entitled to claim any shortfall. Whilst the Act doesn’t define reasonable costs, it is generally accepted that these can include anything from in-house costs to third party debt collection or tracing costs
In addition to compensating a creditor for wasted time and other costs, claiming under the Act provides an important negotiating ground for a creditor when a debtor reaches out to make payment. Often, a debtor will want to settle their debt quicker to avoid the ongoing increase in interest.
On all services provided by Debt-Claims, you can choose to claim under the Act where appropriate. Our in-built calculator calculates the exact amount of interest and compensation owed for all invoices and allows for you to also claim reasonable costs.
If you are unsure whether your contract falls within the remit of the legislation, then our intelligent system works out from the creditor/debtor details and agreement type, whether the Act applies to your contract. If the Act applies, it will be selectable at the ‘interest details’ stage. If the Act doesn’t apply, then our system will any other entitlements you may have to interest and prompt you to claim these.
Implied payment date
Sometimes, during the contracting stage, the payment due date is unintentionally omitted from discussions.
In circumstances where the payment due date is not specified, then the Act states that the due date is 30 days after the delivery, invoice, or acceptance date (whichever is latest). Importantly, you can also then claim the compensatory sums as detailed above.
Collectively, the Act helps to ‘fill in the blanks’ that you may have in your contract to ensure that payment is made promptly; and compensating you where appropriate.
If you are owed money then the first step is to send a letter before action; you can instruct us and draft a letter before action within a few moments directly from our portal for as little as £12.50. Unlike many other solicitors practices, we operate a fixed-fee costs schedule, meaning that we do not charge any commission on successful debts paid and you also keep all compensatory sums recovered.
